Despite the awkward future, it is worth a try for the Hong Kong Stock Exchange.
Editor’s note: This article is from WeChat public account “Prisma” (ID: lengjing_qqfinance) , the author 耿荷.
September 11th, Shi Meilun and Li Xiaojia, the “sister and sister” combination, in the market without “precautions”, to the London Stock Exchange Group (referred to as “the Stock Exchange” ) An offer is made, hoping to merge the HKEx with it.
According to the conditions put forward by the Hong Kong Stock Exchange, the value of the transaction to the Stock Exchange was as high as 31.6 billion pounds, or about 277.4 billion yuan. If it can be achieved, this will be the largest transaction in the history of the Hong Kong Stock Exchange, and the first major move since Shi Meilun became the chairman of the Hong Kong Stock Exchange.
Before, driven by its chief executive, Li Xiaojia, the HKEx spent nearly £1.4 billion on the London Metal Exchange in 2012 – the first time the HKEx has acquired important overseas financial infrastructure.
After the announcement of the latest acquisition, it immediately sensationalized the world. However, on the evening of September 13, the chairman of the Stock Exchange issued a statement announcing that the board of directors had rejected the invitation of the Hong Kong Stock Exchange and did not intend to further communicate on this matter.
The HKEx immediately responded by saying that it will continue to approach the merger of the two exchanges, which will bring significant benefits to both shareholders. At the same time, the Hong Kong Stock Exchange stressed that detailed work has been done and preliminary discussions have been held with relevant regulators and policy makers.
Within three days, this “century marriage” has been full of twists and turns, but the market is still full of expectations.
If the HKEx can finally merge with the Exchange, the new group of the two parties can cover 18 hours of trading time zone, and will be unmatched in terms of trading product types and currencies. The influence will also break through Asia.
The market value of the new group formed by the two parties is expected to exceed 70 billion US dollars, or it can become a large trading group that competes with NASDAQ and NYSE in the United States. The pattern of world finance will be profoundly changed. As Li Xiaojia said, “This is the first real strong marriage between East and West capital.”
However, in order for this transaction to finally land, the HKEx will have to face the challenges of the global macro environment in addition to repeated competitions with shareholders and relevant regulatory agencies.
Although the future is awkward, it is worth a try for the HKEx. For Shi Meilun and Li Xiaojia, two veterans of the mainland and the Hong Kong capital market for many years, the ambition is still unfulfilled, and this may be the most glorious battle of his career.
Three major financial market integrations vs. 12 billion pounds of debt pressure
After the market close on September 11, the Hong Kong Stock Exchange announced that it has proposed to the board of directors of the London Stock Exchange Group to propose the merger of the Hong Kong Stock Exchange and the Stock Exchange to create a global Financial infrastructure.
At 6 o’clock in the evening, Li Xiaojia, chief executive of the Hong Kong Stock Exchange in London, compared the HKEx and the Stock Exchange to Romeo and Juliet on the conference call. He said that the merger was a “century marriage.”
Therefore, the HKEx gave a high valuation to show sincerity and determination. According to the recommendations of the Hong Kong Stock Exchange, each share of the shares of the Stock Exchange can receive 2,045 pence of cash and 2.295 shares of the newly issued shares of the Hong Kong Stock Exchange.
According to the above bid, the value of each share of the Stock Exchange is approximately 8361 pence, which is a 22.9% premium to its closing price on September 10. Based on this calculation, the value of all issued share capital of the Stock Exchange is approximately 29.6 billion pounds. If the net debt is taken into account, the value of the company on the Stock Exchange is 31.6 billion pounds.
However, the Hong Kong Stock Exchange said that the premise of the deal is that the Exchange needs to stop the $27 billion acquisition of Refinitiv. Refinitiv, formerly the financial and risk department of Thomson Reuters, was acquired by Blackstone and renamed Refinitiv.
The Hong Kong Stock Exchange proposed to merge with the Lunjiao at this point in time, and it is hoped that the Exchange will be prevented from acquiring Refinitiv. Because of the landing of the transaction, the size of the Exchange will be too large, and the possibility of merger will be greater. To reduce.
“(This transaction) is close to the HKEx, and I don’t want to be late.” Li Xiaojia said in a conference call.
If the Hong Kong Stock Exchange’s offer can be made, the HKEx will pay the consideration with cash held at hand and new credit financing. Upon completion of the transaction, the HKEx will make a second listing in London.
After the introduction of this proposal, many financial institutions are optimistic about the synergy generated by the merger of the Hong Kong Stock Exchange and the Stock Exchange. Yan Zhaojun, an analyst at Zhongtai International, told Prism that if the two parties merge, they can increase the variety of trading products and the trading time zone. The Exchange has advantages in fixed income and foreign exchange, and is an offshore dollar center, which helps the Hong Kong Stock Exchange. Increase trading products and increase profitability.
“This acquisition will span the three major time zones of Asia, Europe and the United States. In the future, it will be able to achieve 18 hours of uninterrupted trading, enhance investor convenience and Hong Kong’s advantages as a financial center. This transaction will help China in the future. Enterprises go out, for example, in addition to listing in Hong Kong, they can raise funds on the stock exchange to increase the influence of Chinese companies in the world. It is expected that the products of the future exchanges can also be listed on the Hong Kong Stock Exchange.” Yan Zhaojun said.
Hong Hao, Managing Director of Bank of Communications International, believes that HKEx is a leader in global equity, equity derivatives and IPO markets in terms of assets and products, while the advantages of the Stock Exchange areFor fixed income, foreign exchange and commodities. The Stock Exchange has the core financial services, clearing, settlement and other post-transaction service financial infrastructure, the world’s leading index and data analysis capabilities, and the most extensive and high-end sales pipeline. From the perspective of listed companies and investors, the Exchange covers the most valuable and resourceful companies and investors in mature economies in Europe and the United States, while the HKEx covers more dynamic populations and industries in emerging markets. A fast Asian economy.
“The marriage of the two exchanges will also bring the connection and integration of the three major financial markets, becoming an important stabilizing force in the turbulent world. Hong Kong is now an international financial center, providing a gateway for foreign investors to enter and exit the Chinese market. If the transaction can be completed, Hong Kong will become a pivotal platform for the international financial market.” Hong Yu told Prism.
But there are also financial institutions that are not optimistic about the deal. On September 12, Citibank downgraded the HKEx rating to “sell” and lowered its target price to HK$210. The main reason is that according to the purchase price given by the Hong Kong Stock Exchange, the forecasted price-earnings ratio of the Stock Exchange has reached 42 times, far exceeding the historical average of 22 times.
The rating agency Fitch pointed out in its report that according to the quotation from the Hong Kong Stock Exchange, the cash portion involved will reach 13.3 billion pounds, and the HKEx may need to do this in view of the current cash holdings of the HKEx. The transaction borrowed 12 billion pounds. The HKEx will finance through new credit instruments, which will increase the debt ratio of the HKEx.
“Unlike the all-cash acquisition of the London Stock Exchange in 2012, the HKEx needs to issue nearly 70% of new shares this time, which will result in a dilution of the original shareholders’ equity. Therefore, this transaction cannot be considered only from valuation considerations. It is necessary to consider from the planning of the long-term Hong Kong Stock Exchange.” Yan Zhaojun said.
Prepare for more than one year. “Sister and sister” partner seeks greater international influence
The HKEx has been planning for the acquisition of the “unexpected” outside world for a long time.
On the evening of September 11, Shi Meilun revealed that the acquisition of the Lun.
In April 2018, Shi Meilun replaced Zhou Songgang, who had expired his term of office, and became the chairman of the Hong Kong Stock Exchange. The Hong Kong Stock Exchange officially opened the “sister-sister” partnership model between Shi Meilun and Li Xiaojia.
Shi Li has a lot in common. The 70-year-old Shi Meilun went to the United States to study in the early years, obtained a master’s degree in law, and served as the first non-intermediate person to serve as the vice chairman of the China Securities Regulatory Commission.
Smith Mellon, 12-year-old Li Xiaojia, went to the United States to study in the early years and also obtained a law degree. He was the first person in the Mainland to serve as the chief executive officer of the Hong Kong Stock Exchange.
With a thorough understanding of the mainland and Hong Kong markets, Li Xiaojia has served as the Hong Kong Stock Exchange Administration since 2010.Since the president, he has promoted the interconnection of the mainland and Hong Kong stock markets – “Hong Kong Stock Connect”, “Shanghai Stock Connect”, and “bond pass” linking the bond markets of the two places.
In 2012, under the leadership of Li Xiaojia, the Hong Kong Stock Exchange acquired the London Metal Exchange for £1,380 million. The deal has sensationalized the market. In addition, he also promoted the completion of the listing rules reform in Hong Kong, so that companies with different rights and unprofitable biotech companies can be listed in Hong Kong.
After the completion of the above series of “big moves”, the market has doubts: What else can the HKEx do next?
In April 2018, Shi Meilun officially became the chairman of the Hong Kong Stock Exchange. The market expects that Shi Meilun will bring new changes to the HKEx by virtue of its vast network of contacts and resources in the financial market.
A marketer once said to Prism that Li Xiaojia was able to be the chief executive of the Hong Kong Stock Exchange at the time by the chairman of JP Morgan Chase China. The recommender was Shi Meilun. The origins of the past have made this pair of sisters and brothers more tacit.
After taking office, Shi Meilun said in communication with the media that she will then promote the Hong Kong Stock Exchange to participate in more international business.
After August 2018, the Hong Kong Stock Exchange announced that it had appointed Tori Cowley as Chief Communications Officer and officially took office in September. Gao Kaili is a Hong Kong-listed company recruited from London. She was the director of the Corporate Communications Group of the London Stock Exchange Group. She was also the head of corporate affairs for Thomson Reuters in the Middle East and Africa region of Europe and the head of financial communications at Reuters.
Gao Kaili reports directly to Li Xiaojia. At that time, the Hong Kong Stock Exchange explained that the establishment of the new position of Chief Communications Officer is to further enhance the international brand awareness and influence of the Hong Kong Stock Exchange.
In February of this year, the Hong Kong Stock Exchange released the first strategic plan after Shi Meilun took office. The Hong Kong Stock Exchange clearly stated that from 2019 to 2021, the development focus will be centered on “based on China, connecting the world, and embracing technology.”
In early July of this year, Li Xiaojia further said in an interview with the media that in the connection with the world, “now the Hong Kong Stock Exchange already has a metal exchange, and there will definitely be acquisitions of other exchanges. After the capital returns to China, it can better enrich the products in the Asia-Pacific region and at the same time enable the Hong Kong market to be better reformed.”
So, seven months after the announcement of the strategic plan, Gao Kaili became the chief communications officer of the Hong Kong Stock Exchange for one year. The Hong Kong Stock Exchange suddenly made an offer on September 11 and proposed to merge with the Exchange. Looking back now, this transaction, which has made the market unprepared, has indeed been step by step and prepared for a long time.
Shareholders, supervision and other challenges are huge, and transactions may become a long-term battle
After the Hong Kong Stock Exchange announced the trading offer on September 11, the London Stock Exchange immediately gave a more positive response. LunAccording to the report, the proposal put forward by the Hong Kong Stock Exchange is still relatively preliminary, and the Exchange will consider the relevant proposals.
On the evening of September 13, the situation suddenly reversed. The chairman of the Exchange said that the board of directors of the Stock Exchange had rejected the offer of the Hong Kong Stock Exchange and could not see any benefit from continuing to contact.
The statement of the Exchange stated in detail the reasons for the refusal of the HKEx in four aspects, including the fact that the HKEx’s takeover offer requires the Exchange to stop the acquisition of Refinitiv, which is expected to become the world’s leading financial The basic service provider’s strategy did not match, and after the announcement of the plan on August 1, the market value of the Stock Exchange has increased by 5.8 billion euros.
The Exchange believes that the geographical advantages of the HKEx will continue in the future, and it is even more blunt to say that it is paying more attention to the relationship with the Shanghai Stock Exchange in terms of seizing the opportunities in China. At the same time, the Exchange believes that the HKEx’s bid is not attractive, and 75% of the price is paid by issuing shares, but the stock price is uncertain. Even if the deal eventually landed, it still faces the challenges of multinational regulators.
For the statement of the Stock Exchange, the Hong Kong Stock Exchange is not “dismay”. Immediately, the Hong Kong Stock Exchange also issued a statement emphasizing the determination not to give up.
This reversal adds momentum to the next trend of “century marriage.”
In fact, the Stock Exchange, as the largest and most important exchange group in Europe, was not the first to be “married.” As early as 2005, Macquarie Bank had proposed a £1.5 billion takeover offer. In the second year, Nasdaq raised its purchase price to 2.4 billion pounds. However, the above two offers were rejected by the Exchange.
In 2015, the Stock Exchange and Deutsche Börse plan to merge to form a new company, UKTopCo, which will hold 54.4% and 45.6% of the new company, respectively. But this plan was rejected by the European Executive Committee in 2017 involving a monopoly.
Although the recommendations of the shareholders of the Stock Exchange have not taken place, in the past few years, the exchange has not stopped the pace of development. In 2007, the Stock Exchange spent $2.15 billion to acquire the Italian exchange; in 2011, it acquired the TMX Group, the parent company of the Toronto Stock Exchange, for $3.2 billion.
The HKEx’s proposed merger is the first time the Stock Exchange has received an offer from Asia. Many market participants told Prism that outside the shareholders, the regulatory challenges facing this transaction will be enormous.
“The exchange between the Hong Kong Stock Exchange and the Stock Exchange, the price has a premium, compared to the current price is not cheap, but the Brexit, starting from the medium and long-term or worth it. I think the business is very good, but the exchange involves sensitive countries and financial security It is not easy to settle.” Hong Kong senior banker Wen Tianna expressed his views on the transaction to Prism.
Yan Zhaojun analyzed that the current single major shareholder of the Hong Kong Stock Exchange is the Hong Kong government. If the acquisition is implemented, the Stock Exchange is nowThe first major shareholder, the Qatar Investment Authority, will replace the Hong Kong government as the single largest shareholder of the new group. However, under the Hong Kong Securities and Futures Ordinance, any person holding more than 5% of the equity of the Hong Kong Stock Exchange is subject to the consent of the Government. Other legislation grants the Hong Kong Government the right to appoint 6 directors of the HKEx (a total of 13 directors). The chairman of the office is also appointed by the chief executive. The chief executive must be approved by the Hong Kong government. Therefore, the UK may consider the factor of controlling the future of the London Stock Exchange in the hands of the Hong Kong government.
The Bank of America Merrill Lynch pointed out in its report that in view of the current poor global economic situation and the fact that the UK is in a state of separation from the European Union, the merger of the Hong Kong Stock Exchange and the Stock Exchange will be full of challenges and heights. determine.
Wen Tianna told Prism that even if the deal is approved, the trading cycle is expected to be very long.
After a day of digestion, on September 12, the Hong Kong Stock Exchange closed at HK$237.4 per share, down 3.5%, far more than the Hang Seng Index fell 0.26%. As of the close of the market on September 13, the stock price of the Hong Kong Stock Exchange rose by 3.4 Hong Kong dollars, or 1.43%, to 240.8 Hong Kong dollars.
The attitude of the market to the HKEx’s “century marriage” has been shocked from the beginning and has stabilized. As for the ultimate success, it is up to the teams of Shi Meilun and Li Xiaojia to work together.
After two years, Li Xiaojia, born in 1961, will be 60 years old, and his three-year plan will be completed. In the past two years, someone had asked him if he had retired at the press conference. At that time, Li Xiaojia replied eagerly to take care of his grandson at home.
I don’t know if the merger of the Hong Kong Stock Exchange and the Stock Exchange will be the ending of Li Xiaojia’s retirement. But obviously, there is not much time left for him.